Adding Value For Shareholders In South Africa: An Analysis Of The Rembrandt Restructuring

Thanks to a restructuring movement known as “unbundling,” which involves the selling or otherwise splitting off of unrelated businesses, the South African corporate landscape has changed materially from the system dominated by family controlled groups of companies that the author described in this journal six years ago. Holding companies like Anglo‐American, the largest and best known of all the groups, have become more both more focused and more international (in those lines of business they have chosen to retain). At the same time, they have relinquished a good deal of control to outside shareholders. But if unbundling has succeeded in adding value in some cases, it is by no means a panacea for shareholders. Value is likely to be added for shareholders only when such restructurings are expected to (1) increase the efficiency of existing operations; (2) discontinue value‐destroying investments; or (3) encourage new investment only in projects that are expected to return more than their cost of capital. For this reason, a restructuring like the one recently completed by the Rembrandt group—one that simply divided the company into two major parts while retaining the old managerial control structure—does not hold out much promise for shareholders. Besides challenging the basic premise of the Rembrandt structuring, the author also questions a common practice among financial analysts: the tendency to view a company that trades at a “discount” to its net asset value as an obvious candidate for unbundling. As currently calculated, the relationship between a holding company's market value and the net asset values of its listed (and unlisted) subsidiaries provides an unreliable indication both of the extent to which management has succeeded in delivering value in the past, and whether an unbundling is likely to increase shareholder value in the future.